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What is Credit Fraud?

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Credit fraud is when someone steals one of your existing credit card accounts or uses your personal info to open a fake account in your name. The fraudster may rack up charges or transfer funds before you’re aware of the situation.

Although most card issuers have some form of fraud protection, dealing with credit fraud can be stressful and time-consuming. Here’s what you should know.

Types of credit card fraud

Although a perpetrator can commit credit fraud in many ways, the two most common strategies are application fraud and account takeover. Understanding the differences can help protect you and your loved ones from potential threats.

  • Application fraud: Also referred to as identity theft, this type of fraud involves a perpetrator stealing your identifying information, such as your social security number, and using it to open a new account in your name. The fraudster may use the new card to withdraw cash or purchase expensive items. Unfortunately, it’s not always easy to spot this type of fraud, and you might not even know about it until you see your damaged credit score.
  • Account takeover: Another popular type of credit fraud is the account takeover. This is when a criminal hijacks an existing credit card account by changing the account’s billing address or password. From here, the fraudster can report the credit card as missing or stolen to receive a new card, which they then use to rack up charges.

Debit card fraud vs. credit card fraud

Most credit card companies offer zero liability protection — meaning if someone racks up charges with your lost or stolen card, you don’t have to pay any of it back. For companies that don’t offer zero liability, your total credit card liability is limited to $50 based on the Fair Credit Billing Act (FCBA).

With debit cards, fraudulent purchases are protected by the Electronic Funds Transfer Act (EFTA). However, the extent of your protection depends on the time it takes to report your card as stolen or missing:

  • Reported before charges are made: You face no liability if the missing card is reported before incurring any fraudulent charges. 
  • Reported within 48 hours: Your liability is limited to $50 for any fraudulent purchases.
  • Reported after 48 hours: Your liability is limited to $500 for any fraudulent charges.
  • Reported after 60 days: You are liable for all fraudulent charges made during this time, including money withdrawn from the account or linked accounts, plus overdraft fees. 
  The bottom line: Since debit cards don’t offer the same level of protection as credit cards, it’s wise to leave them at home to reduce the risk of lost or stolen cards.

How credit fraud happens

Fraudsters can access your credit in various ways. Here are the most common approaches to stealing your account or information.

  Theft

Someone might steal your purse or wallet while you’re out shopping, gaining access to your credit card information. You’ll probably notice the loss quickly and can cancel or freeze your accounts, but the thief may still cause a lot of damage in the meantime.

 Skimming

There are also harder-to-detect crimes, such as credit card skimming, which is when a device is placed in an ATM or a point-of-sales system, such as at a gas pump. These hidden devices scan and record your card’s information when you swipe it. Your card’s information could also be stolen when using an unsecured website or Wi-Fi network or during a data breach.

 Phishing

In some cases, you may willingly give out your account information without realizing you’re falling for a credit card scam. Fraudsters send out phishing emails that look official but direct you to a fake website (which might look very similar to the real site). The website then prompts you to enter your account or personal information or to download software that infects your computer. Alternatively, fraudsters may ask for your personal or account information over the phone or through social media.

Once thieves get your information, they can use it in various ways, such as purchasing goods and services, buying gift cards or withdrawing a cash advance. If they have your bank account information, they may be able to make an electronic transfer to their account. They could also sell your personal information to other scammers via a “dark web” marketplace.

4 signs you’ve been hit by credit fraud

Staying vigilant might help you detect when your information is compromised before the fraudster causes significant damage.

Here are four red flags that can help with credit card fraud detection:

 You receive a notification from your financial institution

Banks, credit unions and credit card issuers have systems to detect and prevent credit fraud. For example, your credit card transaction might not go through if you’re trying to make an abnormally large purchase or if the transaction is made far from your home.

Your card issuer may call, text or email you, asking for confirmation regarding the transaction. Contact your bank immediately if you receive a notification for a transaction you didn’t initiate.

Sometimes you may need to manually sign up for fraud alerts — check your account’s security settings for more information. And make sure your contact information is up-to-date so that you receive all notifications.

 You notice unauthorized charges on an account

Regularly review your account statements for transactions you don’t recognize. You can view them online if you don’t want paper statements. If you see any suspicious activity, contact the financial institution immediately to report the transaction, get a new card and change your account’s login information.

Connecting multiple accounts to budgeting software can make monitoring your accounts for unauthorized transactions easier.

Some financial institutions also let you sign up for alerts whenever certain conditions are met, such as purchases over $100 or when your balance falls below $25. You can even set these alerts to email you after every credit card purchase, which may seem excessive but could help stop fraudulent activity on cards you rarely use.

 Your credit report changes

Monitoring your credit reports for changes can help you spot credit fraud. Changes in your personal information, such as your address, could signify that someone else used you to apply for credit.

A new hard credit inquiry on one of your reports could also indicate someone has tried to open a new account using your information. Or perhaps your credit report lists an entirely new account and you don’t recognize the lender.

If you notice any unusual changes, quickly contact the credit bureau to dispute the incorrect data and contact the creditor for advice on next steps.

 You get a bill or collection call for an account you don’t recognize

Some accounts aren’t reported to the credit bureaus, but you could still get a bill or even a collections call. These could indicate you’ve become a victim of identity theft or credit fraud. However, they may also be their own type of scam. For example, the caller may be trying to get you to make a payment on a debt that you never owed. Or, the caller wants you to disclose personal or financial information they can use or sell.

Don’t pay bills for accounts you didn’t open, and don’t share personal information over the phone, especially if you didn’t initiate the call. You can take several steps to verify a debt collector’s claims and legitimacy, such as asking for their address and contact information and requesting a written debt validation notice.

How to protect yourself from credit fraud

Scammers can attack on different fronts. Defending against credit fraud can require a mix of physical, digital and mental preparation. Some will rarely require your attention, while others are an ongoing process.

Here are a few steps to help protect you against credit card fraud:

Sign up for credit monitoring

Federal law allows you to access a free copy of your credit report on a regular basis. You can use AnnualCreditReport.com or a free credit monitoring service — the latter will monitor and send alerts for suspicious activity. LendingTree offers a free credit check as well as both free and paid identity monitoring services. To get full coverage of your Equifax, Experian and TransUnion reports, you can sign up for one or more of these monitoring services.

Freeze your credit reports

You can freeze your credit reports with each of the three credit bureaus online — Experian, Equifax and TransUnion. Once frozen, creditors that don’t already have a financial relationship with you generally can’t access your reports. As a result, someone else might struggle to open an account using your credit profile. When you want to open new accounts, you can unfreeze your reports using a PIN. Freezing and unfreezing your reports is free.

Check for card skimmers

Before using an ATM or card reader, check the machine for a card skimmer. You can look for out-of-place colors or materials, misaligned edges on the machine, or even grab and shake the device a little to see if any plastic pieces break free. These are typical signs that someone installed a skimmer on top of the machine.

Shred financial documents

If you have any paper documents with personal or financial information, you may want to shred them before throwing them away. These could include receipts, preapproved credit offers, old checks or credit cards, loan or credit card statements and documents from your doctor.

Don’t share personal information

If you receive a phone call, mailed letter or email with an official letterhead, don’t share your personal or financial information. Even if the message looks legit, call the company’s customer service number (which usually appears on the back of your card) to verify the sender’s authority.

Don’t write down or carry your PIN or SSN

Keep as little information as possible in your wallet or purse. Don’t carry your Social Security card and don’t write down your debit card’s PIN. You may even want to carry a copy of your health insurance card rather than the original.

Use unique logins for each financial account

You don’t want a data breach at one company to put all your financial accounts at risk. Creating unique usernames and passwords for every account (both personal and financial) can help these accounts to remain secure. Using a password manager to generate and store usernames and passwords can make the process easier.

Enable two-factor authentication on your accounts

Two-factor authentication (2FA) adds an extra layer of security to your online accounts. With 2FA enabled, you’ll receive a code via your phone or email, which you’ll then enter before logging into your account. Some systems also use verification apps.

Stay away from your finances while on public Wi-Fi

Since public networks generally aren’t secure, it’s best to avoid making purchases or logging into your online accounts while you’re on an open network.

Don’t shop on unsecured websites

Check the website’s URL before entering personal information, such as your Social Security or credit card numbers. You should see “https” in the address bar — not “http” — Remember, the “s” stands for “secure.” On some browsers, a padlock icon or other symbol will appear in the URL window to indicate a secure site.

Research examples of credit card fraud

The Better Business Bureau’s Scam Tracker lists the latest reported credit card scams across the U.S. and Canada. Keeping on top of the current trends can help you avoid a future con. If you doubt a recent request or situation, you can type in the details and see if someone else has experienced a similar fraud.

What to do if you’re a victim of credit fraud

What if you notice unauthorized charges on your account or a new account you didn’t open? Don’t worry, support is there for you.

Here are some critical steps to take if you need to report credit card fraud:

  Contact the financial institution

Whenever you notice an unauthorized credit card transaction or transfer from your bank account, the first thing you want to do is contact the company. Let it know you didn’t authorize the transaction, and follow their lead on the next steps. You’ll want to close fraudulent accounts and may need to get new credit or debit cards. You might also want to change your impacted accounts’ login information and debit card PIN.

 Report the crime to the authorities

You can report your case to the Federal Trade Commission (FTC), which will create a customized recovery plan for you, including pre-filled forms to send to financial institutions. The FTC will also give you an Identity Theft Report, which they say you can use instead of a police report in some cases. For example, you can use an Identity Theft Report to request an extended fraud alert on your credit reports (which will last seven years rather than one). Additionally, you can contact your local police department to file a police report.

 Add a fraud alert on your credit reports

What is a fraud alert on a credit report? Basically, this lets creditors know they must contact you and verify an application before proceeding with a new account. You’ll need to contact one of the credit bureaus to place a fraud alert on your account. That bureau will then contact the other two bureaus, ensuring that the fraud alert stays on your report for a year. You may also want to freeze your credit reports, as discussed above.

 Correct your accounts

You may need to contact a different financial institution branch to correct and reverse the unauthorized transactions. If the companies don’t send updated information to the credit bureaus, you may also want to dispute any accounts or marks on your credit reports related to the fraud.

 

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